ASSIGNMENT - II

Retail Merchandise Mathematics for a Dummy store

Submitted
by

Apoorva Mohta (MFM/21/290)

Divya (MFM/21/1099)
Divyendu Vatsa (MFM/21/287)
Muskan Saraf (MFM/21/1078)
Vasudha Shome (MFM/21/347)

Omni Channel Planning and Buying

"MASTER OF FASHION MANAGEMENT (MFM)"

Submitted to: Prof. Vikas Kumar

Submitted on: 6/05/2022

Department of Fashion Management Studies (FMS)

National Institute of Fashion Technology (NIFT)
Mithapur Institurtional Area, Mithapur Farm Area, Mithapur,
Patna, Bihar - 800001
Ph. 91 612 2340032, Fax: 2366833/4
Web: www.nift.ac.in
May, 2022

1
 Acknowledgement
We take this opportunity to express our sincere gratitude to our professor Prof. Vikas Kumar
for giving us an opportunity to work on such an interesting topic. The final outcome of the
project required a lot of guidance and assistance from our professor.

We would also like to thank our team mates for all their help and cooperation during the
assignment.

Apoorva Mohta
Divya
Divyendu Vatsa
Muskan Saraf
Vasudha Shome

2
 Table Of Contents
ACKNOWLEDGEMENT -------------------------------------------------------------------------2

1. INTRODUCTION ------------------------------------------------------------------------ 4
2. TERMINOLOGIES FOR RETAIL PRICING ---------------------------------------- 5
3. METHODS OFPRICING FOR MERCHANDISER --------------------------------- 7
4. SIX MONTH MERCHANDISING PLAN -------------------------------------------- 9
5. INVENTORY TURNOVER ------------------------------------------------------------ 25
6. MEASURING RETAIL PERFORMANCE IN RELATION TO SPACES -------29
7. REFERNCES ------------------------------------------------------------------------------31

3
 INTRODUCTION
Zodiac Clothing Company Ltd. is an Indian manufacturer of men's clothing that owns the
ZODIAC, ZOD!, and z3 brands. The company manufactures men's clothing and accessories
for the Indian and international markets. M. Y. Noorani founded 'House of Zodiac' in 1954 as
a necktie manufacturer. In 1984, ZCCL was formed as a private limited company. ZCCL
became a public limited company in 1994.

As of 2018, Zodiac Clothing Company Ltd. used a company-owned model for its 121-store
retail chain, which employed over 2,100 direct on-roll employees and 1,500 independent
retailers.

4
 TERMINOLOGIES FOR RETAIL PRICING

Retail pricing terminology defined for “Calculating Markup: A Merchandising Tool”.

Billed Cost of goods: Products' gross wholesale cost before trade and quantity discounts are
applied; good's invoiced cost.

Competition: Enterprises, organizations, or retail formats with which the merchant must
compete in the marketplace for the same target customers.

Industry: A collection of businesses that sell items that are identical, comparable, or near
alternatives for one another.

Market: Products/services that aim to meet the same consumer demand or target the same
demographic.

Cost: Wholesale, billed cost, and invoiced cost are terms used to describe the cost charged by
a vendor for products acquired by a merchant.

Discounts: Price reduction in the current retail price of products at retail (i.e., customer
allowance and returns, employee discounts)

Customer Allowances and Returns: Retail price decreases owing to dirty, damaged, or
improper style, color, or size of products, frequently after the sale has ended.

Employee Discounts: Employee purchases will be cheaper; this will be a benefit and an
incentive for employees to learn about stock. Discounts: a cost reduction granted by the
vendor at the production level.

Cash Discount: If the invoice is paid on or before the set payment date, a predetermined
discount percentage is deducted from the invoiced cost or billed cost of goods.

Quantity Discount: Discounts are granted to retailers depending on the number of purchases
made of a certain product category or the total amount of purchases made over a set period of
time.

Trade Discount: Discounts are applied to the manufacturer's list price, and the invoice is
billed at the discounted price.

Gross Margin: The gap between net sales and cost of products sold in dollars or percentages.

Invoice: Vendor's bill or itemized description of products sent, including unit and extended

5
costs, as well as transportation and insurance charges (if applicable).
Markdowns: Reduction in retail price of merchandise; reduction in original retail price of
goods; expressed in dollars as difference between the original retail price and new retail price;
expressed in percent as a percent of net sales or markdown dollars divided by net sales
dollars.

Markup: Retail pricing is determined by adding dollars to the cost of items; the difference
between retail and wholesale prices must cover expenditures, retail discounts, and retailer
profit.

Average Markup: markup across product categories, sets of goods, departments, and
retailers; On order copy, the markup is calculated using the total cost and total retail of the
goods. Markup on items over time, on the whole inventory, on a single transaction, or on a
series of purchases.

Cumulative Markup: Differential between total cost of goods and total retail of all items
handled to date or over a particular period of time; includes markup on initial inventory and
acquisitions over a given period of time.

Individual Markup: For one item of product or one stockkeeping unit, the markup is
determined (SKU).

Initial Markup: gap between supplied wholesale cost and initial retail price of products; first
or first markup imposed on goods.

Gross Markup: Total retail and total cost on a collection of products.

Operating Expenses: Operating Expenses are all expenses incurred when running a firm,
both direct (controllable) and indirect (fixed and variable).

Retail Price: When making a purchase, the customer pays the retailer the price for the
product or the monetary worth of the merchandise.

Retail Reductions: Returns and allowances from customers, employee discounts,

markdowns, and shrinkage.

Sales: Retail shop income or sales volume

Gross Sales: Complete retail prices charged to a consumer for all items and services,
including cash and credit, before any discounts.

Net Sales: Operating income; sales volume; gross sales less reductions.

6
 METHODS OF PRICING FOR MERCHANDISER

• Basic Retail Formula

Cost of Goods (purchase of cost of the goods or an item) + Markup = Retail Price
Retail Price - Cost of Goods = Markup
Retail Price - Markup = Cost of Goods

• Basic Formula to calculate the Markup percent on retail selling price:

Formula: Retail Price- Cost of goods = Markup
Markup percent on retail selling price = Markup / Retail Price X 100.

Step 1:
Retail (selling Price of an electrical cooker) = Rs 2400/= 119 Retail Mathematics for Buying
and Merchandising

Step 2:
Cost (at purchase) = Rs 2000 Step 3: Markup at Retail (or selling price) = Retail Price – Cost
= Rs 2400 – Rs. 2000 = Rs 400.

Step 3:
Markup at Retail (or selling price) = Retail Price – Cost = Rs 2400 – Rs. 2000 = Rs 400 to
arrive at Markup percent on retail selling price.

Step 4:
Rs 400/ Rs. 2400 X 100 = Rs 16.66% or 16.7%
Markup percent on retail selling price: 16.7%.

In simple words;

Markup in Rupees is = Retail Price - Cost

Markup % = Markup in Rupees ÷ Retail Price

Margin %: Margin is the amount of gross profit made when an item is sold. And if
represented in %, then it is called as Margin %

Formula: Margin % = (Retail Price - Cost) ÷ Retail Price

Example: Retail Price (Selling price) of a Television set = Rs 20000

Cost (at purchase price of a TV) = Rs. 18500
To calculate Margin %; Rs 20000 – Rs 18500/ Rs 20000

7
Based on the past records determine the reductions each month.

Step 5: Planned purchased at Retail:

Monthly purchases should be sufficient to carry out the six-month merchandise strategy.
Because all of the other figures in the merchandising plan are dependent on retail, purchases
must be arranged at retail first. To calculate projected retail purchases, use the method below:
Planned = Planned Sales + Planned EOM + Planned Reductions – Planned BOM Purchases

Step 6: Plan purchases at cost

Based on seasonal statistics, an initial markup of x percent is proposed for the time.
Calculate planned expenditures at cost using the formula below.

Planned Purchases = (100% - Initial Markup %) * Planned Purchases at retail at Cost

Buyers may see how much money they'll have to spend on items for the entire season as well
as particular months when they make scheduled purchases at cost. We must also enter actual
figures each month to aid in future planning. Actual monthly data can also help you make any
necessary changes to our plan. If sales perform better, we will need to make bigger purchases
for the remainder of the season in maintain the stock levels specified in the merchandising
plan. However, if sales fall short of expectations, we will have to reduce our buy amount.

DETERMINING STOCK TURNOVER

Our sales forecasting and stock planning decisions must result in a profit for our store. The
stock turnover rate is one indicator of how well we balance sales and inventory levels. The
turnover is determined by how quickly items are sold, refilled, and resold.

The stock turnover rate is the number of times an average stock is sold in a particular period
and is calculated using the average stock price. It is calculated as follows:

Stock Turnover Rate = Sales / Average Stock

The value of inventory at the start of the period, plus the value of inventory at the specified
times during the period, plus the value of inventory at the conclusion of the period divided by
the stock listings is the average stock for any period of time.

● Benefits of High Turnover

1. Fresher Merchandise
2. Fewer markdowns and less depreciation
3. Lower Expense
4. Greater Sales
5. Higher Returns

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● Limitations of High Turnover

Excessively high stock turns can mean the retailer is buying in too small quantities. If so, then
the retailer is:

1. Not taking full advantage of available quantity discounts.

2. Adding to the costs of transportation and handling.
3. Danger of losing sales because of stockouts.

OPEN -TO - BUY

Not everything went as planned. The stock is acquired at the start of each month. Purchase
choices are spread out across the month to take advantage of new inventory lines, reorder hot-
selling items, and acquire off-season merchandise for promotional deals. Furthermore, we
may have Orders that have not been fulfilled, obligations to vendors that have not been
fulfilled. These are extremely valuable. Outstanding orders will lower the month's anticipated
purchases. As a result, you must possess the ability to compute the quantity of items to be
purchased on a given day of the month. The remaining purchases are Open-to-Buy. It is the
amount of money the buyer has left to spend over a certain period of time, and it decreases
with each transaction.

Calculating OTB:

Purposes of OTB:
If effectively used, OTB allows the buyer to:
1. Limit overbuying and underbuying.
2. Prevent loss of sales due to inadequate amount of stock.
3. Maintain purchases within budgeted limits.
4. Reduce Markdowns.
5. Increase sales.6. Improve stock turnover.

13
 PREPARATION OF SIX MONTH MERCHANDISING PLAN

Step 1: Planned sales: It involves -

Forecasting sales - When establishing sales estimates, previous sales figures are useful, but
they can only be used as a reference. Other internal issues are also likely to influence sales.
These are:
Store wide or departmental sales and promotions
• Holidays
• Trends in sales across the store and by department
• Changes in the population's demographic traits
• New competition has arrived in the area.
• Store Hours Have Changed
• Changes in the amount of space available for sale

All merchandising decisions are based on sales or calculated as a percentage of sales. As a

result, if the sales forecast is off, the entire plan will be off, potentially resulting in devastating
results for the retailer.

1. First, we'll need to figure out what percentage of total sales last year's monthly sales were.
This must be completed for each month.
2. Assume that no significant changes occurred during the current season, and that sales data
from past years shows that the percentage of the total sales happening during each month has
stayed reasonably steady.
3. The overall expected total sales for the season would then be determined. Based on
previous years' sales, we anticipate that a total rise of 10% is forecasted for the term.
4. Total planned sales = previous year's total sales Plus x% of last year's total sales.
5. Make sales projections for each month of the current time.

Step 2: Planned Bom inventory

This involves determining the amount of stock required to meet the planned sales.

Planned BOM Inventory = Planned Sales * Stock-to-Sales Ratio

Inventory Planning Techniques: Stock levels must be sufficient to satisfy sales targets while
allowing for unexpected demand. Our goal as a buyer or merchandiser will be to keep an
inventory.

1. The Stock-to-Sales Method: It entails keeping inventory in a certain proportion to sales.

The following formula is used to calculate the stock-to-sales ratio:

Stock-to-Sale Ratio = Inventory Value / Actual Sales

The stock-sales ratio is used to calculate BOM stock levels and shows the relationship
between expected sales and the amount of inventory necessary to produce those sales:

10
● Revised figures against each parameter to take care of the effect of actual figures, as the
season progresses, on the rest of the months due to change in sales or reduction activities.

● Actual figures against each of the parameters as the season progress.

● Against Sales and Reduction parameters we have also shown month-wise percentage
breakup of planned activity against the overall plan for the season.

●This is done to show how we have planned the sales and reduction activity through different
months or periods of the given season.

SALES BASED ORDER

Sales Based Ordering: A method of constructing a store's item request by utilizing Epos sales
data to create a forecast of future requirements. For the request age estimation, stock levels,
rack occupancy, and lead times can be remembered.

• What Is Sales Order Processing?

The sequence of steps that a firm conduct to satisfy a customer purchase is known as deal
request preparation. Today, innovation is commonly used to assist with deal request
preparation, ensuring that each need is met. The data is collected at every touchpoint on the
merchant's side, from charging through creation and coordination expected to competently
fulfill a customer request.

When a customer clicks "Buy" on a website or calls in a request, an agreement is formed. A

complicated web of correspondences that spans a significant portion of an organization's
knowledge.

Clients, despite the complexity of this connection and the number of orders handled by a
dealer, want their purchases to arrive on their doorsteps or in their stockrooms quickly — and
Due to the preparation of transactions, items are usually.

To appreciate excellent deals and request preparation, we must first take a step back and
examine the business. The request itself, as well as its reason and how it compares to previous
request reports.

• What Is a Sales Order?

The business request confirms the terms of a transaction between a buyer and a seller. The
request is created by the dealer, usually in response to a purchase request. This report may be

17
sent by the merchant to the client or rely on it only for internal purposes. The number, value,
and complexity of the business request are all subtleties. The sky's the limit from there in
terms of transportation time duration.

• What Is the difference between a Sales Order and a Purchase Order?

After receiving a purchase request from a customer, the merchant produces a business request.
While these phrases seem similar, they differ in terms of who created them and why they were
created.

Buy Order: The buyer submits a purchase request to the seller, detailing the kind, quantity,
quality, and other features of the perfect product or service. A purchase request is also known
as a customer request.

Deals Order: After the buyer acknowledges the vendor's value citation, the merchant delivers
the business request and confirms the agreement. When you make a business request, the
purchase is considered legally binding, and no further exchange is allowed.

KEY TERMS AND ROLES IN SALES ORDER PROCESSING

Electronic Data Interchange (EDI): It is a technique for computer systems to communicate

data in a standardized format, allowing businesses to send and receive sales orders and other
documents without the need for human intervention.

Quotations: A sales quotation, also known as a price quote, is a price estimate that you
present to a potential buyer. They can assess if the acquisition will meet their requirements.
Creating and presenting sales materials Sales teams are in charge of bids, however because
approved price quotes become purchase agreements, orders must be communicated to sales
processing teams.

Pro Forma Invoice: A pro forma invoice is preliminary. Before they deliver the invoice, the
seller sends it deliver or ship goods.

Stock Allocation: This is the process of deciding how your inventory will be divided among
your storage facilities or other physical places.

Sales Returns: A sales return is products returned by a customer owing to an error.

Error or defects: This is recorded as a debit in the sales returns account by the finance
department a credit to your accounts payable.

18
Price Book: Price books are collections of different pricing for the same goods in some
applications. The Prices may differ depending on the quantity ordered, retail vs. wholesale,
shipping zone, promotions, and other factors and much more.

Sales Document Workspaces: Sales document workspaces are locations in sales processing
suites where sales documents are processed where you may view information about your sales
order, such as quotations and invoices.

Order-to-Cash Cycle: This is the time it takes for a customer to make an order and for the
seller to receive payment.

Procure-to-pay cycle: The first is about the time it takes for a buyer to raise a procurement
order and then finish it by payment.

Customer service representatives and an order desk or team are important participants in the
sales order processing process. The process is additionally supported by key account sales
professionals, sales order administrators, sales order management specialists, and order
fulfillment specialists. They assist in ensuring that the organization handles order queries
properly, ensure pricing and product availability are current, and that personnel appropriately
complete orders. Sales accounting is a specific field of knowledge, and certain organizations,
such as the Association of Sales Accountants, have established standards. As part of the
certification process, Accounting Technicians provide sales order processing training.

COLLABORATIVE PLANNING, FORECASTING AND REPLENISHMENT (CPFR)

In the planning and fulfilment of client demand, CPFR combines the intelligence of different
trading partners. To boost availability while reducing inventory, transportation, and logistics
costs, CPFR combines sales and marketing best practices (e.g., category management) to
supply chain planning and execution procedures. Any administrative practice that adopts a
close and organised collaboration, or administered, among independent companies is best
defined as a collaborative process among companies. Multiple exponentials, a theoretical
method generally employed when working with predictable, seasonal data and the most
widely used method for predicting and replenishing, served as a starting point for projecting
the projection.

The following formula shows the interaction of seasonality, consumption trends, and
consumption periods:

19
 Where Ft+1= forecast planning for period t+1, F1 = forecast planning for period 1, α =
Saudization constant and D = real demand for period 1

To decrease costs and create an investment plan, the company will be able to specify back-up
stock – the minimum number of parts in stock, the optimum period for order replenishment,
the suitable quantity of parts to be acquired by lots – in order to narrow the forecast
evaluation.

➢ Sell-Through Rate in Retail

The sell through rate is a percentage-based metric that compares the amount of inventory
received from a manufacturer or supplier to what is ultimately sold to the customer. When
comparing the sale of one product or style to another, the time period evaluated (typically one
month) is useful. Or, more crucially, when examining trends in the sell-through of a specific
product from month to month.

For a company like Amazon or Wal-Mart:

• The number of units a manufacturer sells to a retailer is known as the sell-in.
• The number units of a product have been sold out to the customer (from the retailer) is
called sell-out.
• Sell-through is synonymous with sell out.

➢ Retail Conversion Rate

Determine the timeframe you want to look at first. Then divide the total number of sales by
the total number of consumers who visited your store within the specified time period to get a
decimal. Multiply this decimal by 100 to convert it to a whole number. This is where you'll
find your conversion rate. The conversion rate formula is set out below:

What factors influence the retail conversion rate of our store?

• Assign retail salespeople to the floor.
• Arrange your exhibits strategically.
• Keep track of your inventory.

20
15
 FORMAT FOR PREPARING THE MERCHANDISE PURCHASE PLAN

The following Row fields are shown (Parameters): Seasons, Sales, EOM stock, Reduction,
BOM stock, Planned Purchases at Retail, Planned Purchases at cost.

Now against each of these fields there are rows which show:

●The last year’s achieved figures, so that one can compare the planned and actual figures for
each parameter against it.

● Planned or targeted figures against the given parameters, it must be noted here that except
for the Sales and Reduction parameters (fields) for rest of the parameters the figures against
planned activity are derived through the use of formulas as discussed here below.

16
● Revised figures against each parameter to take care of the effect of actual figures, as the
season progresses, on the rest of the months due to change in sales or reduction activities.

● Actual figures against each of the parameters as the season progress.

● Against Sales and Reduction parameters we have also shown month-wise percentage
breakup of planned activity against the overall plan for the season.

●This is done to show how we have planned the sales and reduction activity through different
months or periods of the given season.

SALES BASED ORDER

Sales Based Ordering: A method of constructing a store's item request by utilizing Epos sales
data to create a forecast of future requirements. For the request age estimation, stock levels,
rack occupancy, and lead times can be remembered.

• What Is Sales Order Processing?

The sequence of steps that a firm conduct to satisfy a customer purchase is known as deal
request preparation. Today, innovation is commonly used to assist with deal request
preparation, ensuring that each need is met. The data is collected at every touchpoint on the
merchant's side, from charging through creation and coordination expected to competently
fulfill a customer request.

When a customer clicks "Buy" on a website or calls in a request, an agreement is formed. A

complicated web of correspondences that spans a significant portion of an organization's
knowledge.

Clients, despite the complexity of this connection and the number of orders handled by a
dealer, want their purchases to arrive on their doorsteps or in their stockrooms quickly — and
Due to the preparation of transactions, items are usually.

To appreciate excellent deals and request preparation, we must first take a step back and
examine the business. The request itself, as well as its reason and how it compares to previous
request reports.

• What Is a Sales Order?

The business request confirms the terms of a transaction between a buyer and a seller. The
request is created by the dealer, usually in response to a purchase request. This report may be

17
efforts are effective. It's determined by counting the number of people who walk through your
door.

Sales conversion rate: The sales conversion rate is a metric that displays how many visitors
who interacted with your organisation or product made a purchase. It is commonly expressed
as a percentage. The sales conversion rate for an e-commerce business is the ratio of
customers to website visits. A conversion rate of 2.5 percent, for example, suggests that 25
out of 1,000 website visitors made a purchase. Track your metrics for a specific time period,
such as a month, and enter them into the following sales conversion rate formula:

Footfall: The number of individuals entering an area, shop, or building at any given time is
known as footfall. The time can be any frequency you choose, such as every hour, day, week,
month, or even every 5-minute interval.

Retailers use footfall figures to:

• Calculate sales conversion rate
• Dwell times,
• Queueing times,
• Popular store areas,
• Average shopping time and
• Other key performance indicators

22
Price Book: Price books are collections of different pricing for the same goods in some
applications. The Prices may differ depending on the quantity ordered, retail vs. wholesale,
shipping zone, promotions, and other factors and much more.

Sales Document Workspaces: Sales document workspaces are locations in sales processing
suites where sales documents are processed where you may view information about your sales
order, such as quotations and invoices.

Order-to-Cash Cycle: This is the time it takes for a customer to make an order and for the
seller to receive payment.

Procure-to-pay cycle: The first is about the time it takes for a buyer to raise a procurement
order and then finish it by payment.

Customer service representatives and an order desk or team are important participants in the
sales order processing process. The process is additionally supported by key account sales
professionals, sales order administrators, sales order management specialists, and order
fulfillment specialists. They assist in ensuring that the organization handles order queries
properly, ensure pricing and product availability are current, and that personnel appropriately
complete orders. Sales accounting is a specific field of knowledge, and certain organizations,
such as the Association of Sales Accountants, have established standards. As part of the
certification process, Accounting Technicians provide sales order processing training.

COLLABORATIVE PLANNING, FORECASTING AND REPLENISHMENT (CPFR)

In the planning and fulfilment of client demand, CPFR combines the intelligence of different
trading partners. To boost availability while reducing inventory, transportation, and logistics
costs, CPFR combines sales and marketing best practices (e.g., category management) to
supply chain planning and execution procedures. Any administrative practice that adopts a
close and organised collaboration, or administered, among independent companies is best
defined as a collaborative process among companies. Multiple exponentials, a theoretical
method generally employed when working with predictable, seasonal data and the most
widely used method for predicting and replenishing, served as a starting point for projecting
the projection.

The following formula shows the interaction of seasonality, consumption trends, and
consumption periods:

19
 Where Ft+1= forecast planning for period t+1, F1 = forecast planning for period 1, α =
Saudization constant and D = real demand for period 1

To decrease costs and create an investment plan, the company will be able to specify back-up
stock – the minimum number of parts in stock, the optimum period for order replenishment,
the suitable quantity of parts to be acquired by lots – in order to narrow the forecast
evaluation.

➢ Sell-Through Rate in Retail

The sell through rate is a percentage-based metric that compares the amount of inventory
received from a manufacturer or supplier to what is ultimately sold to the customer. When
comparing the sale of one product or style to another, the time period evaluated (typically one
month) is useful. Or, more crucially, when examining trends in the sell-through of a specific
product from month to month.

For a company like Amazon or Wal-Mart:

• The number of units a manufacturer sells to a retailer is known as the sell-in.
• The number units of a product have been sold out to the customer (from the retailer) is
called sell-out.
• Sell-through is synonymous with sell out.

➢ Retail Conversion Rate

Determine the timeframe you want to look at first. Then divide the total number of sales by
the total number of consumers who visited your store within the specified time period to get a
decimal. Multiply this decimal by 100 to convert it to a whole number. This is where you'll
find your conversion rate. The conversion rate formula is set out below:

What factors influence the retail conversion rate of our store?

• Assign retail salespeople to the floor.
• Arrange your exhibits strategically.
• Keep track of your inventory.

20
method is typically employed. This method of inventory planning is based on the idea that
inventory levels should match real sales. This is how it would be calculated:

Beginning of month planned inventory level = Planned average monthly stock for season
x 1/2 (1+ (Estimated monthly sales /Estimated average monthly sales).

• The Week’s Supply Method

The week's supply technique anticipates weekly average sales. This strategy presupposes that
the amount of inventory held is proportional to the amount of sales. This strategy is
appropriate for businesses like department stores where sales do not change significantly. The
targeted stock turnover rate is connected to the planned number of weeks' supply. The stock
value and the sales prediction are proportionally linked in this strategy.

Beginning of month stock = Average weekly sales x Number of weeks to be stocked.

Average weekly sales = Estimated total sales for the period / Stock turnover rate for the
period.

Number of weeks to be stocked = Number of weeks for the period / Stock turnover rate
for the period.

• The Stock to Sales Method

When a shop wants to keep a specific inventory-to-sales ratio, the stock-to-sales method is
acceptable. In most cases, the stock-to-sales ratio at the start of the month is used. This ratio
represents the amount of inventory needed to affect the projected sales for that month.

For example, a three-to-one ratio means a store must have three times the month's estimated
sales in stock at the start of the month.

28
 REFERENCES
• Zodiac Clothing Company Ltd. (2022, April 5). Wikipedia.
https://en.wikipedia.org/wiki/Zodiac_Clothing_Company_Ltd.

• Annual Reports. (n.d.). Www.zodiaconline.com. Retrieved May 6, 2022, from

https://www.zodiaconline.com/annual-reports

• Fundamental Retail Math Formulas | Toolio. (n.d.). Toolio.com. Retrieved May 6,

2022, from https://www.toolio.com/post/fundamental-retail-math-formulas

• Retail Mathematics for Buying and Merchandising UNIT 9 RETAIL

MATHEMATICS FOR BUYING AND MERCHANDISING. (n.d.). Retrieved May
6, 2022, from https://egyankosh.ac.in/bitstream/123456789/14860/1/Unit-9.pdf

• https://www.facebook.com/thebalancecom. (2019). A Look at the Top 15 Retail Math

Formulas and Equations. The Balance Small Business.
https://www.thebalancesmb.com/retail-math-formulas-2890409

31
 • Average Transaction Value in Retail

The average transaction value, as the name implies, is the average amount of money spent by
a consumer on a single transaction, usually measured in dollars.

Simply divide the total value of all transactions within a certain time frame by the number of
transactions that occurred during that time window to calculate the ATV for your shop.

• Conversion Rate Formula in Retail

The retail conversion rate is straightforward to calculate: divide the number of transactions
made during a given period of time by the number of people who visited the store during that
same period. The end result will show not only the fundamental figures, but also provide
insight into other elements. High footfall, for example, indicates that the store is attracting a
large number of consumers, whereas a low conversion rate – or one that is irregular –
indicates that it is not optimising sales potential.

23
RETAIL MATHS FORMULAS

24
 INVENTORY TURNOVER
Inventory Turnover:
The inventory turnover ratio is a method for calculating how long it takes a business to sell
through all of its inventory. When compared to a corporation with a lower inventory turnover
ratio, a greater inventory turnover ratio usually signals good sales.

Step 1

The first step in calculating the inventory turnover ratio is deciding on a measurement period
(e.g., a quarter or a fiscal year). Then, by averaging the ending and beginning inventory costs
for the timeframe in question, get the average inventory for that period. Simply divide the cost
of goods sold (COGS) by the average inventory once you have your period and average
inventory.

Inventory turnover ratio = Cost of goods sold/Average inventory

Step 2

Obtaining a company's balance sheet and income statement might save us a lot of time when
evaluating inventory turnover ratios. COGS are normally recorded on the income statement,
while inventory balances will be found on the balance sheet. Simply plug the values into the
basic ratio formula in these two pages, and you're done.

Example Arvind’s income statement from 2019 showed that the COGS was $15 million, and
its average inventory value between 2016 and 2017 was $3 million. We can use these figures
to calculate the ratio:

• Inventory turns = $15 million / $3 million

Inventory turns = 5

We now know Arvind's inventory turns for the year were 5. We can use this ratio to compare
Arvind's performance to that of other apparel and textile firms. If we discovered that a
competitor's inventory turns are 7, for example, it means that the competitor is selling product
faster than Arvind.

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Limitations of the Inventory Turnover Ratio:

Because the time it takes a company to sell its inventory varies widely by industry, the
method won't help you much if you don't know the typical inventory turnover for the industry
in issue.
Because they sell lower-cost products that decay rapidly, retail stores and grocery chains, for
example, often have a considerably greater inventory turn rate. As a result, large companies
require significantly more managerial attention. Companies that build large machinery, such
as airplanes, on the other hand, will have a significantly lower turnover rate. An aeroplane
takes a long time to build and market, but once it is sold, it can bring in millions of dollars for
the corporation.

Stock to sales ratio:

The stock-to-sales ratio compares stock to sales, whereas turnover measures how rapidly
average inventory is sold and replenished over time. The stock-to-sales ratio is normally
computed monthly, whereas the turnover is usually estimated seasonally or annually.

Stock to sales Ratio = Monthly stock/ monthly sales

Step 1

Calculate the monthly sales. For example, a Louis Philippe store on Patna's Exhibition Road
had sales of Rs. 5,000,000.

Step 2

Determine the value of available stock for the same month. The above store has stock worth
Rs. 10,000,000.00.

Step 3

According to the formula: 10, 000,000 / 5, 000,000 = 2. This suggests that selling at the
current rate will take two months to sell through the average monthly inventory.

The major problem is to strike a balance between inventory levels and the degree of service
you want to offer your consumers. A high turn will result in too many out-of-stock situations,
which will disappoint customers and cause them to leave. A poor turnover, on the other hand,
could put you out of business.

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Slow turnover can have a variety of causes, such as slow-moving product clogging shelves
and making it difficult for customers to browse. More dead stock will result, increasing the
need to sell through discounting.

Methods of inventory planning:

The following are the methods of inventory planning

1. The Basic Stock Method
2. The percentage Variation Method
3. The week’s Supply Method, and
4. The Stock/ Sales Ratio Method

• The Basic Stock Method

This method is used to determine the fundamental level of inventory necessary throughout the
year, independent of season, sales, or other factors. This eliminates out-of-stock situations and
ensures that customers never encounter supply shortages. This is used in conjunction with
either the FIFO or LIFO approach, and the base stock method will have the benefits and
drawbacks of the method it is used with. The Basic Stock approach of inventory planning is
an option to explore for organisations that have relatively regular sales and inventory levels,
with little seasonality or change in sales because the baseline stock is the same throughout the
year. The basic stock approach is comparable to the process used by replenishment systems
and is suitable for planning individual SKUs (stock keeping units).

Stock at the beginning of the month = Planned monthly sales + basic stock

Average stock for season = Total planned sales for season / Estimated inventory
turnover

Average monthly sales = Total planned sales for season / Number of months

• The Percentage Variation method

When the stock is stable, the percentage variation approach is used. The plan and monthly
inventories are closer to the monthly average when stock does not vary significantly. Monthly
percentage variations from average stock should be half as much as monthly percentage
variations from average sales. When the stock turnover rate exceeds six times a year, this

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method is typically employed. This method of inventory planning is based on the idea that
inventory levels should match real sales. This is how it would be calculated:

Beginning of month planned inventory level = Planned average monthly stock for season
x 1/2 (1+ (Estimated monthly sales /Estimated average monthly sales).

• The Week’s Supply Method

The week's supply technique anticipates weekly average sales. This strategy presupposes that
the amount of inventory held is proportional to the amount of sales. This strategy is
appropriate for businesses like department stores where sales do not change significantly. The
targeted stock turnover rate is connected to the planned number of weeks' supply. The stock
value and the sales prediction are proportionally linked in this strategy.

Beginning of month stock = Average weekly sales x Number of weeks to be stocked.

Average weekly sales = Estimated total sales for the period / Stock turnover rate for the
period.

Number of weeks to be stocked = Number of weeks for the period / Stock turnover rate
for the period.

• The Stock to Sales Method

When a shop wants to keep a specific inventory-to-sales ratio, the stock-to-sales method is
acceptable. In most cases, the stock-to-sales ratio at the start of the month is used. This ratio
represents the amount of inventory needed to affect the projected sales for that month.

For example, a three-to-one ratio means a store must have three times the month's estimated
sales in stock at the start of the month.

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 MEASURING RETAIL PERFORMANCE IN
RELATION TO SPACES
A retail outlet with wall units and other shelves may utilise revenue of shelf space to
determine the allotment of space for a product or product category.

• Sales per square foot

Total Net Sales ÷ Square Feet of Selling Space = Sales per Square Foot of Selling Space

Most inventory purchases are planned using sales-per-square-foot statistics. It can also be
used to compute rent for a retail site and evaluate return on investment. When calculating
sales-per-square-foot, keep in mind that sale space excludes the stock room and any other area
where items are not on display.

• Sales per Linear Foot of Shelf Space

Total Net Sales ÷ Linear Feet of Shelving = Sales per Linear Foot

• Sales by Department or Category

The sales-by-department tool is excellent for comparing product lines within a store for
retailers who sell a variety of products. A woman's apparel store, for example, can compare
the lingerie department's sales to the rest of the retailer's sales.

Category's Total Net Sales ÷ Store's Total Net Sales = Category's % of Total Store Sales

• Inventory Turnover
Sales (at retail value) ÷ Average Inventory Value (at retail value)

In retail, cash is king, and your inventory is the biggest burden on your cash. Selling high-
ticket things has the potential to create income, but only if customers purchase the items. For
the retailer, unsold stock is a costly investment. One approach to determine whether you are
restocked or understocked on an item is to track your turnover.

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 • Gross Margin Return on Investment
Gross Margin (dollars) ÷ Average Inventory (at cost)

When compared to inventory turnover, gross margin return on investment (GMROI) is a

popular metric since it combines several variables into one and provides a more accurate
picture of profitability.

• Items per Transaction

Gross Sales ÷ Number of Transactions = Sales per Transaction

The sales-per-transaction number, also known as the sales-per-customer number, tells a store
the average dollar value of a transaction. This formula will be used by a store that relies on its
salespeople to make a sale to measure employee productivity.

• Sales per Employee

Net Sales ÷ Number of Employees = Sales per Employee

When calculating sales per employee, merchants must consider whether the store employs
full-time or part-time employees. Convert the number of full-time employees to the number of
hours worked by part-time employees throughout the period. This method of calculating
productivity is useful for assessing how many sales a company needs to create when
expanding its workforce.

• Gross Margin Return on Investment

Gross Margin (dollars) ÷ Average Inventory (at cost)

When compared to inventory turnover, gross margin return on investment (GMROI) is a

popular metric since it combines several variables into one and provides a more accurate
picture of profitability.

• Items per Transaction

Gross Sales ÷ Number of Transactions = Sales per Transaction

The sales-per-transaction number, also known as the sales-per-customer number, tells a store
the average dollar value of a transaction. This formula will be used by a store that relies on its
salespeople to make a sale to measure employee productivity.

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 REFERENCES
• Zodiac Clothing Company Ltd. (2022, April 5). Wikipedia.
https://en.wikipedia.org/wiki/Zodiac_Clothing_Company_Ltd.

• Annual Reports. (n.d.). Www.zodiaconline.com. Retrieved May 6, 2022, from

https://www.zodiaconline.com/annual-reports

• Fundamental Retail Math Formulas | Toolio. (n.d.). Toolio.com. Retrieved May 6,

2022, from https://www.toolio.com/post/fundamental-retail-math-formulas

• Retail Mathematics for Buying and Merchandising UNIT 9 RETAIL

MATHEMATICS FOR BUYING AND MERCHANDISING. (n.d.). Retrieved May
6, 2022, from https://egyankosh.ac.in/bitstream/123456789/14860/1/Unit-9.pdf

• https://www.facebook.com/thebalancecom. (2019). A Look at the Top 15 Retail Math

Formulas and Equations. The Balance Small Business.
https://www.thebalancesmb.com/retail-math-formulas-2890409

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